Zauner

ZAUNER ORNAMENTS

1. Determine the best base for allocating plant-administration costs

Yu started to think about costing on volume basis and then o a direct labour/direct material basis. In both cases the analysis did not seem to confident cause of the missing data on employed people working on the plant. By relating the direct labour cost with the people employed, from the data of the plant administration cost, we can estimate the workers employed per each ornament box.

We are given that the specialty ornaments do have 24 extra people for painting.

Given the total direct labour costs and the number of plant personnel, we can calculate the cost for each person, i.e. $ 520,000.00/122= $ 4,262.29.

By having this data we can estimate the numbers of employees per each product

Basic ornaments 83.200,00 20

Large ornaments 93.600,00 22

Specialty ornaments 102.200,00 24

241.000,00 56

520.000,00 122

Given the plant administration costs related to the people employed we will consider the plant administration and the plant depreciation as a cost driver.

Customers number can not be taken as a reference cause of the non relevant data given by Exhibit 4

2. Calculate the ABC costs for each product on a per box basis

In order to calculate the ABC costs for each product we do have to evaluate the cost drivers and also he value each product is contributing to general turnover.

Boxes $ Total $ RANK

Small 35.000 9 315000 3

large 50.000 11 550000 2

Specialty 100.000 17 1700000 1

185.000 2.565.000,00

By having attributed the rank to each product, we are able to allocate the percentage of each product on the total volume and on the turnover .

RANK good value $ % value boxes % boxes

1 specialty 1.700.000,00 66,28 100.000 54,05

2 large 550.000,00 21,44 50.000 27,03

3 small 315.000,00 12,28 35.000 18,92

From this schedule it appears that to calculate to apply a direct relation as abc costing, would provide a better analysis than only referring to the volume or the materials employed.

Small Large Specialty

Direct labour 83.200,00 93.600,00 343.200,00

Direct Materials 56.800,00 156.400,00 356.800,00

Total 140.000,00 250.000,00 700.000,00

Direct labour per box 2,38 1,87 3,43

Direct Materials per box 1,62 3,13 3,57

Total per box 4,00 5,00 7,00

Overheads 8,27 5,32 6,14

12,27 10,32 13,14

The overheads have been determined on following basis

Small Large Specialty

Production scheduling 85.000,00 16.081,08 22.972,97 45.945,95

Machine setups 160.000,00 99.740,26 49.870,13 10.389,61

Equipment depreciation 220.000,00 14.392,52 41.121,50 164.485,98

Plant depreciation 150.000,00 24.590,16 27.049,18 98.360,66

Quality inspection 70.000,00 4.579,44 13.084,11 52.336,45

Packing 185.000,00 80.937,50 57.812,50 46.250,00

Plant administration 300.000,00 49.180,33 54.098,36 196.721,31

1.170.000,00 289.501,29 266.008,75 614.489,96

Overheads per box 8,27 5,32 6,14

a) production scheduling costs have been calculated on the base of box produced

b) machine set up is calculated on the number of machine set-ups per box

Machine set ups

machine operations small 48

machine operation large 24

machine operation special 5

Total machine operations 77

c) equipment depreciation has been calculated on the number of boxes produced

d) plant depreciation, as plant administration have been calculated on the employees basis

e) Quality inspection has been calculated on the basis of information given in Exhibit 3 (1 x small ornaments, 2 x large ornaments, 4 x Specialty ornaments)

Boxes 185.000

Quality inspection small 35.000

Quality inspection large 100.000

Quality inspection specialty 400.000

Total quality inspections to be

performed 535.000

f) Packing has also been calculated on the basis of the information given in Exhibit n. 3 (footage small 1.0, footage large 0.2, footage specialty 0.5)

Packing

Sq footage small 35000

sq footage large 25000

sq footage special 20000

Total